Michigan spends $13.6 billion on Medicaid — health care coverage for qualified low-income or disabled people. A huge chunk of that sum comes from the federal government and is passed through Michigan's budget, but it's a huge general fund budget item, too.

For years, Michigan has used a mix of taxes to fund Medicaid — mostly taxing health plans and self-insured employers and individuals. But as Jay Greene reports on Page 1, there are two challenges to that funding. First, an appeals court this summer could disallow the state's tax on medical claims, the so-called HICA tax. Second, the federal government has told the state it can't use taxes assessed against HMO premiums as matching funds for federal dollars after Dec. 31.

Combined, the budget hole could be about $700 million. So the options could include covering fewer people, cutting back on benefits or paying providers — doctors and hospitals — less.

The Small Business Association of Michigan is part of a broad business coalition that would like to eliminate the HICA tax, which one business group says has generated $1 billion for the state. But the tax on HMOs might be preserved, says Tony Stamas, SBAM's vice president of government relations, if the state understood exactly why the feds are disallowing it as a match. Perhaps there are ways to tweak the tax in ways palatable to federal regulators. "We may not have to throw everything out," he told Crain's.

One option under consideration is continuing the HMO use tax but have it channeled into the state's general fund, rather than Medicaid specifically, to fit federal regulators' concerns.

There's yet another issue: whether the expansion of Medicaid has slowed or reduced increases in health insurance premiums because hospitals cut their uncompensated care case loads. SBAM supported Medicaid expansion in Michigan for that very reason. "(Expansion) has helped with uncompensated care," Stamas said. But it's unclear if it has led to reduced costs for business. And it may not be clear for a couple of years because most hospitals have multiyear contracts with insurers. It's in the next generation of contracts that any savings would be realized.

Meanwhile, the Flint water crisis has turned a spotlight to aging infrastructure in water delivery across the state. Something will have to give in a state budget buffeted by competing priorities.